On Wednesday night, the parent of Marina Bay Sands, Genting Singapore’s rival, reported their fourth quarter in the U.S. The results showed VIP volumes in Singapore were down significantly and at their lowest since 2011. The result led Macquarie Equity Research (MER) to believe that Genting Singapore’s result is set to disappoint bullish expectations….

MER released a report on Genting Singapore on 29 January 2015 and explained why:
 
VIP volumes down significantly, by 27% year-on-year (YoY); caps the worst year since opening: MBS did VIP volumes of only US$10bn in 4Q14 vs US$13.8bn in the fourth quarter of 2013. Overall, in 2014, MBS did VIP volumes of only US$42.6bn, which is the lowest since its first full year in 2011 and a significant 29% YoY decline in 2014.
 
GENS could also report a big decline in VIP roll in 4Q14, at least -15%: Even if MER assumes Genting Singapore will take 60% market share in VIP, its VIP volumes will be down at least 15% YoY in the fourth quarter of 2014, in MER’s view.
 
Overall SG VIP gaming volumes could be down approximately 21% in fourth quarter of 2014: This will be a big setback for investors who are still building growth in the Singapore gaming market. MER believes that the Singapore gaming market has matured and runs the risk of disappointing bullish expectations.
 
2014 – the worst year since opening for the SG gaming market but it could get even worse in 2015: Despite a low base having been formed in 2014, MER does not believe investors should build growth into 2015 as they expect the Singapore VIP gaming market to remain under pressure from the “shadow bank tightening” in China and the emergence of more regional casinos.
 
Further bad news for GENS – MBS grows its “mass market” volumes: MBS mass market volumes (tables + slots) came in at US$4.3bn, 7% YoY growth. MBS has a lead over Genting Singapore in the mass market segment with 60% market share, and in MER’s view, could have strengthened its hold in the fourth quarter.

Action and Recommendation
Genting Singapore reports on 24th Feb and is set to disappoint bullish expectations: Consensus is building S$186m of profit for GENS in 4Q14 and MER believes this will set for a strong disappointment. MER’s profit estimates for GENS in the fourth quarter of 2014 are 22% below consensus.
 
Stock is not cheap at 22x P/E and 9x EV / EBITDA with more downgrades to come: MER recommends investors to stay away from investing in the Singapore gaming market at least for the next 6-9 months as they believe the VIP market will continue to weaken and earnings downgrades will continue as more disappointments set in.

Source: Macquarie Research - 30 Jan 2015